Eurogroup gives Greece small repayment extension, no real debt relief

The atmosphere on Friday morning is good. Greece’s creditors cheer,
international and even German media hail the Eurogroup deal as “‘end of
the Greek crisis”, “Greece exits the bailout” and “the Greek debt is
sustainable.” But the Eurogroup of the 19 finance ministers did not
give Greece a debt relief. Neither lower interest rates or a growth
clause. What they did was to extend:

EFSF debt interests repayment and maturities of Greek bonds to 10 years

strict austerity

tight supervision

and more ‘reforms’

The deal reached in the early morning hours of Friday due to German
objections regarding the time debt extension, paves also the way for
Greece to exit its 8-year bailout program.

Furthermore, Greece gets a tranche of 15 billion euros, a so-called
“buffer” which is one more loan. From this 15billion, 3.3 can be used to
buyback loans from the IMF.

The Eurogroup statement adulates the Greeks’ sacrifices and the government’s efforts but in substance the agreement is below expectations or real rewarding.

“We congratulate the Greek
authorities and Greek people for the successful conclusion of the ESM
programme. The Eurogroup acknowledges the significant efforts made by
the Greek citizens over the last years. Greece is leaving the financial
assistance programme with a stronger economy building on the fiscal and
structural reforms implemented. It is important to continue these
reforms, which provide the basis for a sustainable growth path with
higher employment and job creation, which in turn is Greece’s best
guarantee for a prosperous future.”

In its official statement the Eurogroup says it welcomes the commitment of Greece to maintain

a primary surplus of 3.5% of GDP until 2022

a primary surplus of 2.2% of GDP on average in the period from 2023 to 2060.

The Eurogroup agreed to implement, in addition to the short-term debt measures already in place, the following medium-and long-term debt measures in order to ensure that the agreed GFN objectives are respected also under cautious assumptions.
For the medium term, this includes the following upfront measures:

The abolition of the step-up interest rate margin related to the debt buy-back tranche of the 2nd Greek programme as of 2018.

The use of 2014 SMP profits from the ESM segregated account and the
restoration of the transfer of ANFA and SMP income equivalent amounts to
Greece (as of budget year 2017). The available income equivalent
amounts will be transferred to Greece in equal amounts on a semi-annual
basis in December and June, starting in 2018 until June 2022, via the
ESM segregated account and will be used to reduce gross financing needs
or to finance other agreed investments.

The two measures mentioned above are subject to compliance with policy commitments and monitoring, as outlined below.

A further deferral of EFSF interest and amortization by 10 years and
an extension of the maximum weighted average maturity (WAM) by 10
years, respecting the programme authorized amount.

The statement says further that “based on a debt sustainability analysis to be provided by the European institutions, the Eurogroup will review at the end of the EFSF grace period in 2032, whether additional debt measures are needed
to ensure the respect of the agreed GFN targets, provided that the EU
fiscal framework is respected, and take appropriate actions, if needed.”

At the end of its statement the Eurogroup notes “the IMF
confirmed its continued involvement in Greece in the post-programme
surveillance framework alongside the European Institutions.” This is: no
more active IMF participation, but the role of austerity policeman. The
IMF wanted a 15-year-old extension but Germany pressed for 10 years.

He added among others that Greece passed 450 legislative actions
in the context of the 3. bailout program alone. He did not dare
mentioning the legislative, bailout related actions in the first two
fiscal adjustment programs.

With
long-term measures up to 2060, Greece’s plight has by far not ended on
June 22 neither it is going to end on August 18, when it will officially
exit the 3. bailout program.

Risks and hostage situation remains at far future. It is not easy to get rid of 275 billion euros loans in 8 years.

One thing to still be seen is the reactions of rating agencies that
will be crucial for Greece’s return to international markets.

But more crucial is to see how this “great deal,” how “the biggest
solidarity the world has shown ever” (so ESM Regling) will affect the
lives and the pockets of Greeks. For sure is that

pensions will be further cut in 2019 and the poor will be taxed with the broadening of the tax-free basis in 2020.

At the end of the day, we end up where we started, this is at the Eurogroup, with a higher debt than in 2010.